“Free Markets and “Free Trade” = Elite Propaganda” Part I

Ed: This essay has several parts which we’ll publish as a series in the coming days.

Unquestioned ideas

Because they have the word free in them, the terms “Free markets” and “Free trade” have seduced those of all political colours to treat them uncritically as ideas. They are considered good or bad but their intellectual coherence is rarely questioned.

Neo-liberals believe in a childlike quasi-religious fashion in the workings of Adam Smith’s “invisible hand”, which, moved by enlightened self-interest, supposedly creates the best of all possible material worlds through the operation of the market. Socialists see “free markets” and “free trade” as economic “state of natures” which must be ameliorated by the state before a civilised society can be realised. Conservatives in the traditional sense no longer exist as a recognisable political force in the West, but when they did exist they opposed “free markets” and “free trade” primarily on the grounds of national security and the general disruption to society that they caused. Nationalists of the fascistic kind have traditionally opposed the ideas because they see the nation as a single organism which can only be strong if it is master of its own destiny, something which can only be achieved (they believe) through state direction of both the internal market and of external trade.

There are varying quantities of truth in all these ideological responses, but their utility is seriously tainted by the lack of any objective or even properly defined and permanent prescriptive truth in the concepts of “free markets” or “free trade”. The reality of these ideas is that they are arbitrary chosen bundles of behaviours which are excluded or included at the will of their proponents. Moreover, the bundles of behaviours are not static.

The widespread negligence in examining the coherence of these ideas is all the more remarkable because their incoherence as theories and the arbitrary and dishonest nature of their practical realisation is not only readily apparent but fundamentally undermining of the claims made for them by their champions.

The “Free Market” is a state-regulated market

There is a splendid irony in the objection of the self-defined “free marketeers’” and “free traders” to state intervention for the natural end of a truly free market is monopoly – or at least greatly reduced competition resulting in oligopoly and the rule of cartels. All so-called “free market” societies recognise this by passing anti-monopoly laws.

The “free market” is in fact a market controlled by the state in the most fundamental way, that is, to prevent its natural workings. It is one of the great propaganda triumphs of history that “free markets” have been successfully sold as being what happens naturally without state intervention. Call a spade a spade and substitute the truthful “state regulated non-monopolistic market” for “free market” and the psychological shape of the idea changes dramatically. (Some casuistical “free marketeers” might argue that the “free” in free market applies to the workings of the market rather than the market as a natural phenomenon.

That explanation falls because “free marketeers” invariably make the blanket claim that markets only work efficiently without government interference. Their honest position would be to state that they want state regulated markets to prevent monopoly. They will not do that because it would be an acknowledgement that state regulation of the market is legitimate and hence remove any general argument against regulation. That in turn would mean any form of state regulation would be potentially reasonable and consequently, each form of regulation would have to be argued down individually on the merits of the case, rather than simply empty-headedly dismissed on the grounds of no regulation = good; regulation = bad.

The state regulated “Free Market” is not even a natural phenomenon made somewhat artificial by rules to exaggerate the natural phenomenon in the same way that we breed animals to exaggerate nature. Rather it is just about as far from being a natural phenomenon as anything can be for it goes against all Man’s inclinations, both individual and social.

Economic history is overwhelmingly a catalogue of market regulation, local and national, from guilds to governments. It would be surprising if it were not because human beings, like all other organisms, naturally behave to secure their own advantage or that of their group. Extended to the nation state, this natural behaviour has commonly resulted in domestic markets being protected against foreign competition. Whether this is a good or a bad thing is another matter – a question I shall deal with later – all I am concerned to do at this point is to nail down that the fact that protectionist behaviour is what is natural.

13 Comments

A state-regulated non-monopolistic market is not a free market; indeed, it is the very opposite of a a free market. A free market is exactly what it says on the tin: ordinary people being free to contract as they please, without a thug (whether or not he calls himself “the king” or “the government”) interfering. Monopolies and oligopolies are creatures of a state regulation and sometimes of statute (e.g. in the past, British Telecom, British Gas, BBC, etc.; and today, mobile telephony spectrum licensees, railway franchisees etc. – which are oligopolies precise because the government will only allow a small set of companies to provide those services and forbids anyone who is not “licensed” from delivering certain kinds of services, etc.); stable monopolies and oligopolies ONLY ever arise because the state, through its regulation, creates barries to entry, sometimes by law fundamentally insurmountable (e.g. where the number of licensees is by statute fixed), to competitors. Big incumbents can afford to pay armies of lawyers to ensure compliance with regulation and obtain licenses, while small business cannot. In a free market, temporary “monopolies” (in the sense of being a sole or dominant supplier) can sometimes arise, but they are never stable and always subject to being displaced by competition at any time. Large incumbents become complacent, are not usually good at innovation, and are always, once they cease to provide value for money or a good service to their customers – in the free market – displaced by a more nimble and innovative competitor. That is what the free market is. In a non-free, state-regulated market, the opposite is true: incumbents are stably enshrined in their monopolistic positions, and competition, being suppressed by government regulation, is impossible. That is why large monopolists and oligopolists are always the biggest champions of having their industry regulated. I’m afraid, and I say so purely as an observation of fact and with respect, rather than as criticism or derision, the author appears to fundamentally misunderstand what the phrase “the free market” means.

StuartJ
on August 10, 2018 at 7:33 pm

I look forward to future instalments of this article, as I think I can see where the author is going with this.

I am now of the opinion that free markets / free trade are just put in place solely to benefit greedy global corporations and to exploit cheap labour around the world.

And yes, the EU is one of the biggest protection rackets going.

Robert Henderson
on August 13, 2018 at 3:16 pm

One of the great political lies is that free markets and free trade are overall an unqualified blessing. The reality is far different.
The lessons of economic history tell this story: a strong domestic economy is necessary for sustained economic growth and stability. The freer the trade with foreign states, the less stable and secure the domestic economy.
Post-war economic experience illustrates this nicely. Britain experienced her strongest sustained growth in the period 1945-1972. This was a period of protectionism and much state intervention in the economy. Problems arose in the 1970s, but these were largely due to the oil price spike after 1973, a consequence of globalism. However, even with the oil price spike, unemployment in Britain never went much above 1 million until Thatcher arrived and wilfully destroyed our heavy and extractive industries.
During the period 1945-1979, Britain did not suffer a serious sustained recession. From 1979 onwards, under the Thatcherite ideology we have had three serious recessions: in the early 1980s, the early 1990s and the present recession.
To our post-war experience I would add the fact that England built her commerce then the first Industrial Revolution behind very restrictive protectionist measures such as the Navigation Acts.

Jake Bennett
on August 10, 2018 at 4:14 pm

Adam Smith is probably turning in his grave at what is being theorised and practiced in his name .

Bryan Tomlinson
on August 10, 2018 at 4:40 pm

IDC finds Adam Smith International guilty of corruption
Posted on 13 February 2017 by Luke Nash-Jones

Rotten to core as I suspected. Thanks Bryan I must have missed that one. UKIP needs to draw up a policy to pull the rug from under the politicised charity industrial complex by removing their generous tax concessions.

ipz
on August 10, 2018 at 1:24 pm

I have read a lot of Van Hayek.. Van Hayek’s essay in 1939, “The Economic Conditions of Interstate Federalism.” was seen by some as a harbinger of a low-government European community, instead politics and other social and geo-political (corporatist?) ambitions took over and excessive regulation and interference and navel-gazing over-protectionism was the result: an organism that paradoxically is bent on its own self-immolation by dint of a misguided centralised altruism.
If enlightened self-interest and pursuing a competitive advantage defended by the rule of Admiralty law were enough, then Adam Smith would have been right; Van Hayek reached the conclusion that liberalism should reject nationalism and instead build a framework of common security, he believed in a balance of individualism and responsible government protectionism (not a centralised socialist one or corporatist one based on social engineering of the kind we’ve been seeing with globalism)
Looking forward very much to reading your views on a way forward – as you say, the alternative view to this centralised model – a way of taking C19th economic theory forward having learnt the cruel lessons of C20th ideological madness where we still seem to be stuck – is truly lacking. Where these transnational federations tend towards becoming Empires, with all the social control and disaffection that brings, government interference sends the wrong signals and enforces behaviour that is unsustainable, and businesses make bad decisions where oversubsidised or producing what consumers don’t really want or are forced to have, leading to recessions, busts, unemployment etc.. State-corporate alliances which cannot provide jobs to everyone – and the Scandinavian model of a huge public sector kept on its feet by an ailing private one – both seem totally doomed.

Bryan Tomlinson
on August 10, 2018 at 9:22 am

According to free market zealots Adam Smith and the IEA, it’s ok for a North African, for instance, to arrive in London with no English, no UK driving licence and no criminal checks and immediately be employed by Uber to pick up vulnerable women at night.

But strangely the free marketeers say I can’t be a judge, Lord, surgeon, GP or any other similar well oaid profession..

The free marketeers impose a race to the gutter for the many and protectionism for the few.

Jake Bennett
on August 10, 2018 at 4:19 pm

Adam Smith would not recognise what is being said in his name. The corporatists/globalists have hijacked his name – Smith was an entrepreneurial capitalist not a corporatist.

Bryan Tomlinson
on August 10, 2018 at 4:43 pm

Surely the best form of free market is anarchy.

Jake Bennett
on August 11, 2018 at 9:13 am

The principles and economic theories of Adam Smith were good for his time and up to the point when welfarism was adopted by Western nations along with the emergence of corporatism and big government. The economic model of the so-called free marketeers is, as you say, nothing more than a race to the bottom for the benefit of the corporatists and globalists.

Robert Henderson
on August 13, 2018 at 3:21 pm

True true. Economist’s View: Adam Smith and the Role of Government

Economist’s View: Adam Smith and the Role of Government
Gavin Kennedy continues his battle to eradicate misconceptions about Adam Smith: What Adam Smith Actually Identi…

Here is a list extracted from Wealth Of Nations:
the Navigation Acts, blessed by Smith under the assertion that ‘defence, however, is of much more importance than opulence’ (WN464);
Sterling marks on plate and stamps on linen and woollen cloth (WN138–9);
enforcement of contracts by a system of justice (WN720);
wages to be paid in money, not goods;
regulations of paper money in banking (WN437);
obligations to build party walls to prevent the spread of fire (WN324);
rights of farmers to send farm produce to the best market (except ‘only in the most urgent necessity’) (WN539);
‘Premiums and other encouragements to advance the linen and woollen industries’ (TMS185);
‘Police’, or preservation of the ‘cleanliness of roads, streets, and to prevent the bad effects of corruption and putrifying substances’;
ensuring the ‘cheapness or plenty [of provisions]’ (LJ6; 331);
patrols by town guards and fire fighters to watch for hazardous accidents (LJ331–2);
erecting and maintaining certain public works and public institutions intended to facilitate commerce (roads, bridges, canals and harbours) (WN723);
coinage and the mint (WN478; 1724);
post office (WN724);
regulation of institutions, such as company structures (joint- stock companies, co-partneries, regulated companies and so on) (WN731–58);
temporary monopolies, including copyright and patents, of fixed duration (WN754);
education of youth (‘village schools’, curriculum design and so on) (WN758–89);
education of people of all ages (tythes or land tax) (WN788);
encouragement of ‘the frequency and gaiety of publick diversions’(WN796);
the prevention of ‘leprosy or any other loathsome and offensive disease’ from spreading among the population (WN787–88);
encouragement of martial exercises (WN786);
registration of mortgages for land, houses and boats over two tons (WN861, 863);
government restrictions on interest for borrowing (usury laws) to overcome investor ‘stupidity’ (WN356–7);
laws against banks issuing low-denomination promissory notes (WN324);
natural liberty may be breached if individuals ‘endanger the security of the whole society’ (WN324);
limiting ‘free exportation of corn’ only ‘in cases of the most urgent necessity’ (‘dearth’ turning into ‘famine’) (WN539); and
moderate export taxes on wool exports for government revenue (WN879).
“Viner concluded, unsurprisingly, that ‘Adam Smith was not a doctrinaire advocate of laissez-faire’.

A free marketeer would say you CAN be a surgeon or a GP, and that it’s up to you and your customers to freely contract if you want to and not for the government to get in the way. A free marketeer would probably also say that nobody should be a Lord (in the sense of lording it over the rest of us).

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